The Bank of England is rolling out a system-wide stress test to assess how the $16 trillion global private equity and private credit markets would respond to a major financial shock — marking the most extensive review of private markets ever undertaken by the BoE.
📌 Key Points
- Final report expected early 2027.
- Focus is system-wide impact on the UK economy, not individual firm vulnerabilities.
- Private-equity-backed companies employ over 2 million people in the UK.
- The BoE secured participation from firms covering:
- ~33% of UK LBO activity
- 50% of private credit in the UK corporate sector
- 40% of employment in PE-funded businesses
📌 Who’s Participating?
Apollo, Bain Capital, Blackstone, Carlyle, CVC Credit Partners, Goldman Sachs Asset Management, KKR, Permira, among others.
📌 Why Now?
- Private markets have grown rapidly and have not been tested through a major shock.
- Recent U.S. corporate collapses — First Brands & Tricolor — highlight risks such as high leverage, weak underwriting, opacity, and complex structures.
- BoE and global regulators (FSB/G20) warn that private credit could become a financial stability vulnerability.
📌 How the Test Works
- Two-stage scenario: firms report how they would react to stress and to other firms’ reactions, simulating real-world contagion.
- Focused on large UK corporate investments and financing structures.
- Excludes venture capital and commercial real estate.
“To keep delivering their benefits, we need a robust understanding of how risks might flow through the financial system in a stress.”
— Sarah Breeden, Deputy Governor, Bank of England